Construction of the cogeneration facility at the Fortress Specialty Cellulose Mill is proceeding generally as planned with some minor delays due to delivery impediments of major equipment. The turbine and generator are on site and installed with delivery of the final critical path item expected in late September. The cogeneration facility is expected to be delivering power in January 2013.

The Fortress Specialty Cellulose Mill has confirmed that the annual maintenance shut-down will be taken in the last week of September. During this outage, critical electrical work will also be completed to allow connection of the new power generating facility to the grid. This is the first scheduled maintenance shut-down since the mill commenced producing dissolving pulp and it is anticipated that the next annual maintenance cycle may also require a higher level of planned maintenance downtime.

During August, the mill operated at an average monthly rate of 83% of planned production capacity, with steady progress being made on de-bottlenecking activities. Production of dissolving pulp was recently curtailed for an equivalent of four days of pulp production as a result of a premature tube failure in the mill's No. 2 recovery boiler. The boiler and full mill were shut-down safely in order to complete repairs and are now operating normally. The curtailment and subsequent ramp-up reduced the mill's overall production efficiency for the month.

Fortress Global Cellulose Mill

Initial work has commenced at the Fortress Global Cellulose Mill following the close of the acquisition in June 2012, including building and equipment repair and the reactivation of services and utilities in a planned sequence. Water supply and fire protection services are operational and the high voltage distribution network is in the process of being reactivated. Critical equipment assessment is ongoing and the Company is finalizing refurbishment plans for the key process areas. Various cost saving and asset preservation plans are being developed ahead of the coming winter season. To date, pulp mill repairs and re-commissioning activities are proceeding materially as planned.

The continued growth of the worldwide market for non-woven wallpaper base has exceeded management's expectations and the Dresden Mill is maintaining its position as a leader in this market.

During the general maintenance shutdown of the mill in the first 10 days of August, the Company completed the main portion of its 2012 capital expenditures program at the Dresden Mill. To date in 2012, the Company has spent approximately EUR3.7 million in Capex with the goal of increasing production speed from 450 metres per minute to approximately 475 - 500 metres per minute, depending on the product mix, and thereby increasing its theoretical annual production capacity from approximately 56,000 tonnes per year to approximately 60,000 tonnes per year. This increase in production capacity would enable Dresden to maintain its market share of approximately 50% of the world-wide non-woven wallpaper base market.

Landqart Mill

Although the Landqart Mill had another challenging month in July, results in August show a marked improvement with product shipments commencing for the large re-instated banknote substrate order. Although waste rates remained relatively high during this period, they are decreasing and are coming in-line with expectations.

Fortress Optical Features

Fortress Optical Features has met the technical qualifications and received approval to supply security thread components for two banknote issuing authorities. As a result, it will be able to directly or indirectly participate in such upcoming tenders for banknote papers.

The Company operates its specialty papers business at the Dresden Mill located in Germany, where it is a leading international producer of specialty non-woven wallpaper base products. The Company operates its security paper products business at the Landqart Mill located in Switzerland, where it produces banknote, passport, visa and other brand protection and security papers, and at its Fortress Optical Facility located in Canada, where it manufacturers optically variable thin film material.